1HFY20 Core Net Profit (CNP) of RM130m (+25% YoY) came in at 59%/62% of our/consensus full-year estimate. The results are within our expectation because we expect a slower 2H20 as we anticipate a slowdown in ports due to the pandemic, and there are no new key projects in engineering. Correspondingly, we downgrade our TP from RM0.775 to RM0.695 based on 0.22x FY21E BVPS.

1HFY20 Core Net Profit (CNP) of RM130m (+25% YoY) came in at 59%/61% of our/consensus full-year estimate. The result is within our expectation because we envisage a slower 2H20 on a slowdown in ports due to the pandemic and the absence of new key projects in engineering. No dividend was announced, as expected.

QoQ, 2QFY20 core CNP excluding gains from land sale at Senai Airport City (RM5m) came in at RM72m (+25%) due to higher contribution from 37.6%-owned associate (Malakoff) which reported a doubling of net profit to RM105m in the 2QFY20 from a year ago and lower other operating expenses (-11%) and administrative expenses (- 7%).

YoY, 1HFY20 core CNP rose 25% to RM130m, thanks to higher contributions from PTP and associates namely Malakoff, (attributed to maiden contribution from newly acquired Alam Flora, absence of losses from KEV and higher earnings from an additional 12% stake in Shuaibah ), lower operations and maintenance costs, and higher contribution from its subsidiary, Tanjung Bin Energy Sdn Bhd, following shorter duration of plant outage and settlement agreement reached with its contractor. However, lower volume handled at Northport Malaysia and lower contribution from logistics services (Kontena Nasional) offset a potentially better set of results.

Ports and utilities were the main earnings contributors. Looking ahead, we expect a slower 2H20 as we anticipate a slowdown in ports due to the pandemic and no new key projects in engineering. Going forward, MMCCORP’s earnings are anticipated to be largely buoyed by its ports operation and utilities namely Malakoff. However, we remain cautious of a market de-rating on the back of a bleaker economic outlook, both globally and for Malaysia. Currently, its ports portfolio consists of PTP, Johor Port, Northport, Penang Port and Tanjung Bruas Port. That said, we do not discount management continuing their pursuit to acquire additional ports to boost their profile as the largest port operator in the country. Meanwhile, the construction progress for MRT Line 2 is about 77%, with expected completion in FY20. We gathered that while its construction order-book is currently at c.RM4.9b (90% from MRT Line 2), management is actively bidding for new projects in order to meet its targeted order-book replenishment of c.RM500m p.a.

Maintain MARKET PERFORM. We downgrade our TP from RM0.775 to RM0.695 based on 0.22x FY21E BVPS (previously 0.25x) (-2.0SD below 5-year historical forward average) to reflect market de-rating due to a bleaker economic outlook, both globally and for Malaysia. We roll forward our valuation from FY20E to FY21E. The saving grace is a 5.6% dividend yield.

Risks to our call include: (i) lower/higher-than-expected ports activities, and (ii) slower/faster-than-expected construction progress.

Source: Kenanga Research - 25 Aug 2020